Economic Populist Commentary

Economic commentary by a pro-capitalist, economic populist. Demand-Side Economic theory. Consists of author's economic views. Questions & comments appreciated. Dissenting views are VERY welcome and encouraged. Main "agenda" is crafting and advocacy of a "populist" economic agenda. A secondary goal is prevention of an economic Armageddon. Encouraging open discussion of US economy.

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Location: Southern California, California, United States

The author is a physician by profession, and a "student economist" by necessity. The current status of our economy necessitates the latter. The intent of this blog is to explain and discuss economics in layman terms. It is designed to promote thought and discussion. It is written by a layman. Comments and critiques of these theories and letters are welcome and ENCOURAGED. Dissenting comments are also WELCOME! They form the basis for discussion.

Thursday, May 29, 2008

GDP: Another Fake Increase

Today's 1st quarter GDP report showed an "increase" in 1st quarter GDP of +0.9%. This was an upward revision of the previous +0.6% estimate from 4/30/08. The upward revision added +$8.8 billion to the earlier estimate.

However, this upward revision was almost entirely the result of a reduction in US purchase of imports. Since imports subtract from GDP, the downward revision of $25.4 billion actually adds +$25.4 billion to GDP growth. To put it another way, the fact that Americans purchases "decreased" resulted in an "increase" in economic growth. This is a typical of the manipulations the government uses to overstate economic growth.

Not only is this a typical distortion of the economy, even the explanation of the reason for the "increase" is deceiving. A perfect example of this deceptive language is provided by Briefing.com, in the following statement:

"The revised rate of 0.9% for Q1 GDP was due to an upward revision to net exports...."
Though the statement is technically true, it is deliberately deceptive. Net imports are the difference between exports and imports, or

Exports - Imports = Net Exports

In fact, actual exports [b]declined[/b] by -$9.7 billion. However, since there was an even larger -$25.4 billion decline in imports, it resulted in
an "upward revision to net exports".

-$9.7 billion - (-$25.4 billion) = +$15.7 billion

Since most Americans are struggling financially, their purchase of imports has declined significantly. These changes are shown in the graphic below from a copy of Briefing.com's GDP report, showing both the current numbers and the numbers prior to revision (labeled 4/30/08).

The numbers for Net Exports (or trade balance), total Exports, and total imports are in red. The changes from the upward revisions are shown in purple with purple arrows showing the direction of change.



The official numbers for 1st quarter GDP from the BEA can be found for the "advanced" report on page 7, Table 3 from 4/30/08 and on page 8, Table 3 for today's "preliminary" report (5/29/08).

Any claims being made by the Financial media that exports are increasing are false. Exports declined -$9.7 billion. The trade deficit improved only because of the huge decline in imports. Again, the import decline is almost the entire reason for the upward revision of 1st Q GDP from 0.6% (from 4/30/08) to 0.9% (on 5/29/08). Another factor contributing to the change is the +$4.7 billion revision of FOOD purchases by Americans, from the previous -$1.6 billion decline up to a +$3.1 billion increase. Thus, the combined addition of decreased import purchases and increased food purchases added a whopping +$30 billion to our 1st quarter GDP. Despite these revisions, the overall upward revision was only +$9.6 billion.

The reason the "increase" was no larger is because nearly every other area declined. Motor vehicle sales fell by -$2.5 billion. Personal Consumption Expenditures were changed less than a fraction of a %. The major reason our GDP "increased" is because our purchase of imports "decreased." Another concocted case of economic "growth" while the economic status of most Americans worsens.

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1 Comments:

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11:24 PM  

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